Saíd El-Naggar
Published Date:
September 1987
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Elias Saba

My comments are intended to cast light on the main points of Mr. Anani’s paper, to raise some queries about points relating to the seminar’s theme, and to note some aspects that have not been covered in sufficient detail or brought out adequately. Perhaps such discussion will contribute to an understanding of the subject and help elucidate the leading development and adjustment issues that Jordan and other countries have been confronting.

Mr. Anani has adopted a chronological approach instead of a topic-by-topic presentation, his intention being to review from a historical perspective “the origins of the fluctuations in Jordan’s economy, the reasons for these fluctuations, and their impact on the principal economic variables.” The paper accordingly divides the period since 1952 into six phases, which my comments will follow.

The First Phase (1952–66)

This phase was characterized by relative stability, with prices not rising much. The unemployment rate was high. Government efforts concentrated on supplying basic needs and supporting production. The private sector played an important role in the development of industry and agriculture. The Government, it should be noted, did not resort to adjustment policies to any significant extent during this period, possibly because the emphasis was on modernization of the country’s institutions and economic structure and on the transition to modern economic institutions, systems, and methods. It would have been useful if Mr. Anani had included in his presentation of the stages of development in that period some economic indicators such as gross domestic product (GDP) (its annual rate of increase and trends in sectoral rates), the volume of monetary reserves, fiscal debt (particularly public sector revenue from domestic sources), the volume of private domestic borrowing, interest rates, and foreign trade figures and balance of payments statistics over time. Mr. Anani notes that the fluctuations in the economy in that period derived from fluctuations in rainfall and in seasonal agricultural conditions and from external political conditions, as in 1956 and 1957. This confirms the lack of sufficient development in Jordan’s economy at that stage.

The Second Phase (1967–72)

This phase was characterized by domestic and external vicissitudes stemming mainly from the 1967 war, which resulted in the loss of a large part of Jordan’s territory, and the consequent decline in many sources of income coupled with a large-scale population movement. Further, internal political events in Jordan in that period had a negative impact on economic activity and on government efforts in the area of development. All this reminds us of Lebanon’s recent past and present, although Lebanon’s problem today is clearly much graver than those of Jordan then. One striking point is that the disruptive effect of the banking crisis arising from the suspension of payments by Banque Intra and from associated complications extended beyond Lebanon to Jordan (incidentally, Banque Intra suspended payments in 1966 and not in 1967). Mr. Anani states that during that period there was no clear-cut overall adjustment policy, but that specific policies were adopted on an ad hoc basis. The only elucidation we find in the paper are its references to the monetary authorities’ actions upon the devaluations of the pound sterling and the dollar. Although this is important, we would have welcomed some information on the Government’s actions in dealing with the undesirable economic consequences of the various events of that period, particularly as regards production in the various sectors, price levels, private credit, unemployment, the balance of trade, and the balance of payments. Mr. Anani notes that this phase was one of economic regression which reached its climax between 1969 and 1971, and that it saw the beginnings of the inflationary phase—a phase that, it should be noted, did not affect Jordan alone but all the countries of the region, and also the industrial countries.

The Third Phase (1973–75)

Notwithstanding its short duration, this phase was of great importance for the subject of our discussion, because the development plan for that period was an adjustment and correction program rather than a development plan, its broader objective being to stimulate the economy and to restore confidence in it. The main cause of fluctuations in the economy in that period were the 1973 war and the first flare-up of petroleum prices; the latter marked the beginning of the great inflationary wave experienced by Jordan and the other countries in the region, whose impact was felt for years after the period under discussion. The numerous aspects of the inflationary gap on which Mr. Anani dwells here—the steep rise in the cost of living, climbing monetary and credit indicators, the emergence of bottlenecks in the production of numerous goods and services, the speculation (particularly in land), and the powerful pressures to which fixed-income earners were subjected—left their stamp on the economies of many Arab countries and particularly on those that resembled Jordan, such as Lebanon. That is what spurred the Government to intervene directly in the importation, distribution, and pricing of a large number of goods, particularly those deemed essential to consumers in lower-, middle-, and fixed-income groups. That is how the Government adopted during that phase a policy of income subsidies, import monopolies, and price controls for essential commodities. In addition, the Central Bank of Jordan pegged the Jordanian dinar to the SDR in order to stabilize the exchange rate of the domestic currency. We would have welcomed here some idea, if only approximate, of the results of this first experiment with actual adjustment in Jordan and of the extent of its success, particularly as regards the effect of direct government intervention in the distribution and pricing of essential commodities and the subsidization of fixed incomes on the welfare of the income earners concerned, on income and wealth distribution patterns (including the bearing of these patterns on fiscal developments), and on production and its sectoral distribution, especially as regards the tendency to invest in land and real estate construction at the expense of the other sectors. It would also have been important for us to know the extent to which the pegging of the Jordanian dinar to the SDR succeeded in stabilizing the exchange rate of that currency; the cost of this stability in terms of the volume of monetary reserves, foreign trade volume, and the balance of payments; and the effects of all this on domestic production and on monetary and credit indicators.

The Fourth Phase (1976–80)

Mr. Anani calls this a period of buoyancy for the Jordanian economy. It might be more accurate to describe it as a boom following the flare-up of oil prices. This boom was experienced, to a varying extent, by all the countries in the region, including Lebanon, torn as it was by strife on an unprecedented scale. As regards adjustment, the First Five-Year Plan (1976–80) set for itself two objectives: the control of inflationary pressures and the extension of development to rural areas. According to Mr. Anani, this was the first time that Jordan had embarked on “an integrated adjustment policy.” Perhaps this is what motivated him to carry out a detailed study of monetary developments in that period, using a model similar to Patinkin’s and dividing the Jordanian market into three subsidiary markets for goods and services, money and capital, and labor. Later in this section, I will offer some basic comments on his analysis. For now, however, I should like to raise two points of detail.

First, the paper states that commercial bank credit to the private sector rose from 207 million dinars in 1976 to 564 million dinars in 1980. How can this represent an annual rate of increase of 68 percent?

And, second, high interest rates do not inevitably result from an increase in the money supply coupled with an increase in the demand for credit, as implied in the paper. It is on the assumption that interest rates are left to the free play of market forces that one would expect them to be affected by the rate of increase of the money supply (or the credit supply) and by the rate of increase in the demand for credit.

The Fifth Phase (1981–85)

As is well known, this phase was characterized by an economic contraction stemming from a number of factors, the most important of which were the decline in petroleum prices, the conflict between the Islamic Republic of Iran and Iraq, and the world economic recession. Mr. Anani states that the period was marked by the beginning of an adjustment process following the decline of petroleum prices. Yet the 1981–85 Development Plan was very ambitious. At this point, we must ask whether it is not to be expected that if the authorities wish to follow adjustment policies, they must increase government expenditure in periods of economic contraction to offset declining private expenditure. It does seem that the adjustment policy pursued by the Jordanian Government in that period, as distinguished from the preceding boom period, was generally very largely characterized by subsidies to production, exports, and institutions, as against the earlier subsidization of incomes, prices, and essential goods. And it seems that the subsidies of that period, numerous though they were and constituting as they did large-scale public sector intervention in the economy, “have yet to prove their effectiveness.” In connection with Mr. Anani’s statement that notwithstanding unemployment, the wage index did not decline, we should ask whether the wage index at constant prices maintained its level. Another passage requiring clarification is the statement that interest rates did not decline, notwithstanding the economic contraction. The explanation is simple, and borne out in the paper itself. It has to do with the pronounced, and perhaps even infinite, tendency to hold on to liquidity in response to contractionary pressures. The striking fact is that in such circumstances, unregulated interest rates do not rise.

The Sixth Phase (1986 to present)

Mr. Anani states that the targets of the Third Five-Year Plan (1986–90) were optimistic, particularly as the goals set for the first year have not yet been met. The plan looks beyond adjustment to economic contraction and focuses on the completion of the infrastructure and on “bringing about a qualitative change in the Jordanian economy.” In view of the importance of this subject, more detailed information would have been welcome here. Mr. Anani concentrates on seven considerations in his discussion of the characteristics of this phase. We find these considerations and their exposition by Mr. Anani the most interesting and most valuable part of the paper.

Mr. Anani shows that the two goals of development and adjustment have been the twin concerns for the Jordanian Government ever since Phase III. No assessment of the developments in Jordan’s economy based on the paper before us can assert with certainty that the adjustment policies followed by Jordan were successful or that they achieved their objectives. We cannot say, as Mr. Anani does, that during Phase III (1973—75) it was the adjustment policy that stimulated the economy and restored confidence in it. Jordan’s situation reflected that of the region as a whole and stemmed from the first flare-up of petroleum prices. I am convinced that even in the absence of an adjustment policy, Jordan would have been affected by the expansionary forces in the region.

In Phase IV, Jordan adopted an integrated adjustment policy for the first time in its history in order to contain inflationary pressures and to extend development to the rural areas. Yet it experienced all the phenomena and all the evils of the oil boom: numerous bottlenecks, rising prices, cost of living pressures, shifts in investment that were developmentally and socially undesirable, and many other unhealthy social and economic phenomena. There is in the discussion of this phase no serious indication that the adjustment measures were successful.

The same conclusion follows from a reading of the description of Phase V and the first year of Phase VI. Numerous though they have been, the adjustment measures have been unable to deal with the economic contraction that followed the boom period, and Jordan, like other countries of the region, continues to suffer from the consequences of that contraction.

It is my personal impression that no reader of Mr. Anani’s paper will escape the clear conclusion that Jordan, just like other Arab countries (and those of the Third World), has so far proved unable to develop effective adjustment policies in terms of the technical capability, managerial performances, or the creation of an environment conducive to successful adjustment. Even the resolve to follow such policies may well be lacking, clashing as they do so clearly with other economic goals that may be no less important politically and socially. Jordan’s economic course since the beginning of Phase III parallels very closely that of other countries in the region, and particularly those with economies similar to Jordan’s. We cannot therefore state that adjustment policies have scored any actual success either during the period of boom and buoyancy or in that of regression and contraction.

Finally, must point out that would have been most beneficial if the study had concentrated on the seven considerations enumerated in its latter part which could be spelled out in detail and developed further so that we may make our most important determination, namely, the extent to which Jordan, and similar countries, can ensure the existence of the necessary conditions for the success of their adjustment policies and overcome their deficiencies and pitfalls.

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